Weak U.S. GDP Report

The latest U.S. GDP report was mostly bearish news for the U.S. economy.

First, because growth slowed significantly, from 1.4% to 0.6%, or from 5.6% at an annual rate to 2.5% at an annual rate. Meanwhile, inflation accelerated both excluding and including energy prices.

And secondly, because previous growth have been downwardly revised. Nominal GDP for the first quarter was downwardly revised by 0.3%, while the GDP price index was upwardly revised by 0.5%, meaning that real GDP was downwardly revised by 0.8%. That in turn means that published real GDP for the second quarter is in fact 0.2% lower than previously published real GDP for the first quarter.

2003 growth was downwardly revised to 2.5% from 2.7%, 2004 growth revised down to 3.9% from 4.2% and 2005 growth to 3.2% from 3.5%.

Moreover, as net factor income was also downwardly revised and as capital consumption was upwardly revised, national income was downwardly revised even more than GDP ( 0.55% in nominal terms and 1% in real terms).

Talk of a "Bush boom" thus appears even more illegitimate than ever. The positive effects from some of Bush's supply-side tax cuts appears to have been largely cancelled out by the negative effects from a rising deficit and the remaining distortions from Fed policy.

The one bright spot was the 0.35 % upward revision of nominal disposable personal income as so-called "proprietors income" and dividend income was greatly upwardly revised. But most of this was cancelled out by higher inflation and as overall nominal national income was downwardly revised, this came at the expense of a dramatic downward revision of retained corporate profits, something which is bearish for the outlook of investment spending.